Market analyst, Stake<\/em><\/p>\n How is Stals feeling about the Middle Kingdon right now, with its burgeoning youth unemployment, awfully ageing population, preposterous local government debt, and a property crisis for the ages?<\/p>\n \u201cAlthough September\u2019s GDP surpassed expectations \u2013 indicating a few of Beijing\u2019s stimulus measures were taking effect \u2013 subsequent data releases have painted a less optimistic picture.\u201d<\/p>\n Manufacturing activity \u2013 contracting. Construction and services \u2013 slowing. CPI \u2013 declining nearly as rapidly as the price of pork.<\/p>\n \u201cGiven that core inflation, which strips out more volatile products, also dropped by 0.6%, it\u2019s clear that domestic demand continues to be weak,\u201d Stals says.<\/p>\n And this ongoing downturn has been one of the main factors behind the ASX 200\u2019s poor performance in 2023. Fortunately, if Stals is right, \u201cit\u2019s clear that China is looking outwards in the hope of stimulating growth, and this could work in favour of Australian stocks over the long term.\u201d<\/p>\n Stocks like these, starting with wine:<\/p>\n Treasury Wine Estates (ASX:TWE \u2013 $10.49, $8.16bn MC):<\/strong><\/a> Megan says the expedited review of tariffs on Australian wine, expected to conclude within five months, offers significant promise.<\/p>\n Heavy trade tariffs have helped lead TWE\u2019s profits to shrink around 35%. It pivoted by diverting high-end red wines from Australia into Thailand, Malaysia, Singapore and Vietnam, but \u201chas expressed its desire to return to China when possible.\u201d<\/p>\n Since the tariff review, Treasury Wine\u2019s stock rose by 4% higher, but it\u2019s still down by over +17% in the past year, and a long, long way off its pre-pandemic highs.<\/p>\n Elders (ASX:ELD \u2013 $7.22, $1.13bn MC):<\/strong><\/a> Stals says the elimination of tariffs on beef imports by 1 January 2024 is a positive for ELD.<\/p>\n \u201cAustralia is one of China\u2019s major beef suppliers, capturing 9.5% of the import market through its reputation for quality, and the company\u2019s export and distribution units look set to benefit.\u201d<\/p>\n Adverse weather conditions from La Nina has hit profits in recent years but last week ELD received some better-than-expected full-year results, helped by falling prices for fertilisers and agricultural chemicals.<\/p>\n And then there\u2019s the recent acquisitions \u2014 nine (no less) \u2014 which Stals reckons are expected to pay off in the coming year.<\/p>\n \u201cThe stock is still down over 28% YTD which could be seen as a potential buying opportunity,\u201d she notes, but \u201cthe stock goes ex-dividend on the 21st of November, so bear that in mind before diving in.\u201d<\/p>\n Sandfire Resources (ASX:SFR \u2013 $6.23, $2.85bn MC):<\/strong><\/a> Ah, our old bellwether friend, Dr Copper. We meet again.<\/p>\n Stals reckons the struggling property sector in China might have cast shadows over iron ore, but it\u2019s not all bad news for Australian commodities.<\/p>\n \u201cChina\u2019s been gradually easing unofficial curbs on Australian copper imports and despite the red metal\u2019s connection to construction, this is being offset by China\u2019s EV manufacturing dominance.<\/p>\n Copper miners have not performed well recently but the consensus is a significant copper deficit over the next decade is inevitable. <\/p>\n While China is ramping up its own production of the metal, its importance to electrification means copper ore imports are still likely to continue for the foreseeable future,\u201d Stals says. That brings her to Sandfire which owns the Motheo mine on Botswana\u2019s Kalahari Copper Belt.<\/p>\n Its steady climb from $4.74 to $6.10 in the last year makes it a standout and while revenue actually dropped 13% over last year, Stals reckons \u201cthe long term outlook appears positive, and this is being reflected in the share price.\u201d Senior financial market analyst, Capital.com<\/em><\/p>\n Cyclicals look sickly. Copper and oil are heading down. And those surging global bond yields are finally showing signs of fatigue\u2026 perhaps even rolling over.<\/p>\n That, according to Rodda, points to an \u201cimminent growth slowdown\u201d.<\/p>\n It\u2019s the yields that has Rodda\u2019s stock-picking eye though, having been driven up by the US \u2018higher for longer\u2019 mantra, and increased bond issuance by Treasury as it looks to fund massive fiscal deficits.<\/p>\n It\u2019s that run-up in long-dated yields that\u2019s kept equity prices down, and the market bearish. And as Rodda notes, \u201cWhere the US economy goes, so goes the US 10-year yield, and where the US year yield goes, so goes the Australian 10-year yield.\u201d<\/p>\n The important question though \u2013 what does a slowdown in economic activity mean for your portfolio? <\/p>\n \u201cTime to play some defence,\u201d Rodda says.<\/p>\n Starting with these three blue-chip stocks that historically perform well when long-term yields fall. (Bonus: They pay a relatively stable dividend yield.)<\/p>\n Transurban Group (ASX:TCL \u2013 $12.87, $37.9bn MC):<\/strong><\/a> Rose to $15 on the narrative it was an inflation hedge, as the road tolls the company charges are inflation-linked.<\/p>\n However, Transurban shares are strongly correlated with Australian bond yield, so rising yields weakened the stock\u2019s appeal despite a hefty, stable dividend yield of around 4.6%. <\/p>\n Investor sentiment also weakened after the ACCC knocked back its bid for Melbourne\u2019s East Link. <\/p>\n TCL shares are now at the bottom of its range, boosting its dividend yield, with analysts forecasting solid earnings growth that may drive it above 5%. A turn lower in economic growth and bond yields could boost the stock\u2019s appeal. <\/p>\n CSL (ASX:CSL \u2013 $259.13, $125bn MC): <\/strong><\/a>The shocks to the company\u2019s operations have subsided, and it would seem the collections, especially in the US, are beginning to improve. However, this year\u2019s run-up in long-end rates has compressed CSL\u2019s multiples, pushing its share price to a four-year low. <\/p>\n Despite this, analysts forecast a sustained return to double-digit topline growth as the company grows with its sizeable market. <\/p>\n A peak and trend reversal in yields should reflate CSL\u2019s multiples as the economic fundamentals lead to lower growth and inflationary pressures. If economic growth slows materially, the defensive qualities of the stock could also shine through.<\/p>\n Telstra (ASX:TLS \u2013 $3.79, $43.8bn MC):<\/strong><\/a> Investors had the rug pulled from underneath them when the company balked at selling some of its major infrastructure assets, which many investors thought would deliver a significant cash splash. Analysts are forecasting full-year earnings per share of $0.17 in FY24 as the business continues to provide sustained dividends.<\/p>\n However, with a current dividend yield of approximately 4.5%, the surge in long-end yields to 11-year highs has meant the pay-out doesn\u2019t deliver attractive enough risk and reward. <\/p>\n By market standards, Telstra\u2019s dividend yield is high, the company maintains a track record of delivering income to its investors, and if yields peak, it may draw investors towards the stock in a reach for income. <\/p>\n After Telstra\u2019s recent correction, price action is becoming more constructive. The stock has carved out a rounding bottom formation and is testing previous support and now resistance around $3.90. <\/span><\/p>\n The post SUNDAY ROAST: The stocks that lit a fire under our experts this week<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"
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\n<\/strong><\/p>\nKyle Rodda<\/h2>\n
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\nThe views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.<\/em><\/p>\n